**Private mortgage insurance (PMI)** is a priced risk when conventional down payments sit under common equity thresholds. It protects the **lender**, not the borrower. This guide owns that distinction, a verified **10% vs 20% down stack twin**, and **removal timeline literacy** (borrower request near 80% of original value vs automatic termination near 78%). Open the Mortgage Calculator to build P&I and add a PMI estimate into the monthly stack; use House Affordability when you need a simplified PMI sketch inside a DTI budget.
What this guide owns
- What PMI is (and is not).
- Loan-to-value (LTV) and why thin equity triggers PMI.
- Verified twin: same $400k price, 10% down with PMI vs 20% down without.
- Planning rule: budget with PMI in; treat removal as upside.
It is not a DTI stretch ladder and not a percentage-points twin.
What PMI is (and is not)
PMI is insurance that reduces the lender’s loss if you default when equity is thin. It is **not** homeowners insurance, flood insurance, or a product that pays your mortgage if you lose your job.
Common conventional literacy: loans above about **80% LTV** (less than about **20%** down on purchase) often require PMI. Exact pricing depends on credit, LTV band, loan type, and insurer. FHA loans use **mortgage insurance premiums (MIP)** with different rules; do not paste conventional cancel dates onto FHA.
LTV in one line
LTV ≈ loan balance ÷ property value used by the rule
At purchase, “value” is often the purchase price (or appraisal if lower). Scheduled cancel math under the Homeowners Protection Act (HPA) for many conventional loans keys off **original value**, not a hopeful future appraisal. Appreciation-based cancel can exist as a separate path with extra requirements; do not fund today’s budget on tomorrow’s Zillow printout.
Stack twin: 10% down with PMI vs 20% down without
Illustrative only. Fixed-rate P&I at **6.5%**, **30 years**. PMI sketch uses the same simple rule as the affordability tool: **0.5% of loan per year** while LTV exceeds 80% (actual quotes vary).
Purchase price = $400,000
| Path | Down | Loan | P&I / mo | PMI sketch / mo | P&I + PMI | |---|---:|---:|---:|---:|---:| | A · 10% down | $40,000 | $360,000 | ~$2,275 | ~$150 | ~$2,425 | | B · 20% down | $80,000 | $320,000 | ~$2,023 | $0 | ~$2,023 |
Monthly gap (P&I+PMI vs P&I) ≈ $403 Annual PMI sketch ≈ $1,800
Taxes, insurance, and HOA are the same in both paths for this peel; the twin isolates **equity choice + PMI**. Liquidity matters too: Path A keeps $40k more cash outside the house. Path B lowers the monthly stack and removes the PMI line. Neither is “morally” correct; the honest move is to price both against your buffer and horizon.
Add the PMI dollars into the mortgage panel’s optional monthly field (or insurance-style add-on) so the stack is not P&I theater. Rerun P&I on the Mortgage Calculator; confirm the PMI sketch on House Affordability when LTV exceeds 80%.
Removal literacy: 80% request vs 78% automatic
For many conventional loans covered by the HPA (see CFPB Ask CFPB):
| Milestone | Literacy (original value) | |---|---| | ~80% LTV | You may **request** cancellation when principal is scheduled to reach 80% of original value (conditions apply: current, good payment history, and other servicer requirements). | | ~78% LTV | Servicer generally must **automatically terminate** PMI when principal is scheduled to reach 78% of original value (if you are current). | | Midpoint of amortization | Separate backstop: PMI generally must end by the midpoint of the original term if still present and you are current (for a 30-year loan, about year 15). |
Schedule peel on Path A ($360k loan, $400k original value)
Using standard amortization at 6.5% / 30 years (illustrative):
Balance ≈ 80% of original ($320k) → about month 95 (~7.9 years) Balance ≈ 78% of original ($312k) → about month 109 (~9.1 years)
That is **scheduled** principal reduction, not a promise that your servicer will cancel on that calendar day without paperwork, currency, or other conditions. Extra principal can pull the 80% request forward. Falling behind can delay automatic termination.
**Planning rule:** afford the stack **with** PMI. Treat earlier cancel as upside. If removal is required for the budget to work, the base case is already fragile.
Appreciation is not a budget plan
Some borrowers cancel sooner after an appraisal shows higher value. That path can require fees, eligibility rules, and servicer approval. Do not underwrite today’s leftover on assumed home-price growth. Use appreciation, if it arrives, as optional acceleration, not as Gate 1.
How to run a clean PMI pass
- Price P&I at your quote on the Mortgage Calculator.
- Add a realistic PMI monthly (quote or conservative sketch).
- Stack taxes, insurance, HOA, and maintenance.
- Compare a higher-down / no-PMI path if cash allows.
- Read your PMI disclosure for request and automatic dates.
- For income-side max price with a PMI sketch, use House Affordability. For DTI vs leftover framing, see the PITI and DTI guide. For listing stress gates, see the house affordability framework.
Common failure modes
- Modeling rent vs **P&I only**, then discovering PMI after underwriting.
- Betting the budget on cancel in year three via appreciation.
- Confusing PMI with homeowners insurance or FHA MIP rules.
- Ignoring that 10% down still needs a full PITI + PMI stack under DTI.
- Paying PMI for months after an automatic termination date without checking the servicer (keep statements).
When this sketch is not enough
- Lender-paid PMI (different pricing, often baked into rate).
- Piggyback / second-lien structures that change LTV math.
- FHA, VA, and USDA insurance or funding-fee rules.
- High-risk loans where cancel rights differ under HPA categories.
FAQ
Is PMI the same as homeowners insurance?
No. Homeowners insurance protects the dwelling and liability. PMI protects the lender against default loss when equity is thin.
Is PMI always required under 20% down?
Often for conventional purchase loans, but products and overlays vary. Some structures price risk differently. Confirm with your lender.
Should I avoid PMI at all costs?
Not automatically. Sometimes keeping cash for reserves is worth a temporary PMI line. Compare monthly stack, horizon, and liquidity, not slogans.
Can home value increases remove PMI faster?
Sometimes, with appraisal and servicer rules. Do not base affordability on appreciation.
When can I request PMI cancellation?
For many conventional loans, when principal reaches about 80% of original value (scheduled or by actual paydown), if you meet currency and other requirements. See your disclosure and the CFPB PMI FAQ.
When does PMI end automatically?
Often when principal is scheduled to reach about 78% of original value (if current), with a midpoint-of-amortization backstop. Confirm for your loan.
Bottom line
Price PMI as a real monthly bill, compare the down-payment twin, and treat cancel dates as literacy rather than a required rescue. Run the $400k stack twin on the Mortgage Calculator, keep the PMI sketch honest on House Affordability, and verify cancel rights on your written disclosure.